Emerging Stocks Fall From Two-Week High on China Outlook

By Maria Levitov and Leslie Picker -
Mar 11, 2013

Emerging market stocks fell from a
two-week high, led by consumer discretionary and industrial
companies, as Chinese data dimmed the nation’s economic outlook
and tensions on the Korean peninsula escalated.

OGX Petroleo & Gas Participacoes SA, the company owned by
Brazilian billionaire Eike Batista, slumped 15 percent after an
unexpected drop in offshore oil production. The won weakened to
a one-month low against the dollar as North Korea threatened to
target the South Korean nominee for defense minister. Central
European Distribution Corp. (CEDC), a Polish vodka distiller, surged 13
percent in New York after announcing a new debt swap offer.
Brazil’s real depreciated as the central bank intervened.

The MSCI Emerging Markets Index declined 0.2 percent to
1,063.56 in New York as 449 stocks fell while 318 rose. China’s
industrial output had the weakest start to a year since 2009 and
lending and retail sales growth slowed. Tensions on the Korean
peninsula are at the highest since at least 2010, when 50 South
Koreans were killed in attacks by the North.

“China is the key growth engine for the region,” Jeff Papp, senior analyst at Lisle, Illinois-based Oberweis Asset
Management Inc., said in a telephone interview. His firm
oversees $700 million. “It’s showing more signs of slowing, so
any companies from anywhere else that play into those trends may
see some weakness.”

Emerging stocks also fell after French industrial
production dropped more than expected in January as Europe’s
second-largest economy teetered on the brink of its third
recession in four years. Fitch cut Italy’s debt rating after the
close of equity markets on March 8 as European Union leaders
prepared for a March 14-15 summit to discuss financial-rescue
terms for Cyprus.

Biggest Losses

Nine out of 10 groups in the MSCI Emerging Markets Index (MXEF)
dropped as measures of consumer discretionary and industrial
shares slid at least 0.6 percent. The broader measure has risen
0.8 percent this year, trailing a 7.2 percent gain in the MSCI
World Index (MXWO) of developed-country stocks. The emerging-markets
index trades at 11.1 times 12-month projected profits, compared
with the MSCI World’s 14.2 times, according to data compiled by
Bloomberg.

The iShares MSCI Emerging Markets exchange-traded fund, the
ETF tracking developing-nation shares, dropped for the first
time in five days, decreasing 0.5 percent. The Chicago Board
Options Exchange Emerging Markets ETF Volatility Index, a gauge
of options prices on the fund and expectations of price swings,
rose 0.9 percent to 15.40, snapping a four-day slump.

Brazil, Mexico

Brazil’s Bovespa (IBOV) rose 0.2 percent. Cia. Energetica de Sao
Paulo, the nation’s second-largest power generator by capacity,
rose to a one-month high as Credit Suisse Group AG recommended
buying the stock, citing rule changes that are expected to boost
cash flow. OGX tumbled to the lowest since 2008.

The country’s real depreciated 0.7 percent against the
dollar after the central bank sold $1 billion of reverse
foreign-exchange swaps to weaken the currency.

The Mexican IPC index declined 0.7 percent. The nation’s
biggest homebuilders tumbled for a third day after meetings with
investors in New York and London failed to quash concern that
the companies will struggle to finance themselves amid increased
costs. Urbi Desarrollos Urbanos SAB sank 4 percent to a record-
low, while Desarrolladora Homex SAB lost 1.3 percent.

CEDC Surges

Poland’s WIG20 Index fell 0.5 percent. CEDC surged as much
as 37 percent in New York. Eurocash SA (EUR), Poland’s biggest
distributor of non-durable consumer goods, gained 1.4 percent.
Eurocash will replace TVN SA in Warsaw’s WIG20 Index of the
biggest and most liquid stocks after market close on March 15,
the bourse said in a statement on Feb. 7.

Hungary’s forint lost as much as 1.4 percent and traded 0.8
percent lower at 301.82 per euro on concern central bank
President Gyorgy Matolcsy is concentrating power in a bid to
reshape monetary policy making.

The Shanghai Composite Index dropped 0.4 percent, its third
day of declines. The Jakarta Composite index fell 0.4 percent
from a record. Thailand’s SET Index rose 0.7 percent to its
highest close since January 1994, after the nation’s credit
rating was raised to BBB+ by Fitch Ratings. South Korea’s Kospi (KOSPI)
index lost 0.1 percent.

South Africa

The Kenyan shilling strengthened 0.9 percent versus the
dollar after peaceful presidential elections in East Africa’s
biggest economy. Kenya held its presidential vote on March 4,
where Uhuru Kenyatta, who is preparing for trial at the
International Criminal Court, won by 50.07 percent of the
ballots cast, the Independent Electoral and Boundaries
Commission said on March 9.

The extra yield investors demand to own emerging-market
bonds over U.S. Treasuries fell one basis point, or 0.01
percentage point, to 278, according to JPMorgan Chase’s EMBI
Global Index.